Expect a far better share of FII flows into the market: Ajay Tyagi, UTI MF

In a chat with ET Now, Ajay Tyagi, EVP & Fund Manager-Equities, UTI MF, says India’s position as an outlier, as a outstanding kind of an economy which continues to chug along between a 7-8 per cent kind of a GDP growth, should help it attract more FIIs. Edited excerpts



ET Now: It seems like the Brexit shock is well behind us and the market recovery is back and in fact not just us but Asia as well has been on a recovery mode?

Ajay Tyagi: This was one of the events which was widely discussed and debated over the last couple of months and therefore to that extent this was not really a new event or a Black Swan event for the markets. But the markets were mislead in the last one week on the basis the opinion polls and also what the bookies had to suggest and possibly that is why we saw such a kneejerk reaction on Friday. Having said that, I do not think we have seen the last of the impact or the analysis of Brexit on global markets including Indian equity markets. The fact remains that this is an event where two blocks -- whatever remains of EU and UK -- have to sit and discuss how things should move forward for them but fortunately for the globe not only for these geographies, for the whole globe and for India and emerging markets as well, we have a reasonable time frame of two long years. Therefore, to that extent, the markets are reacting today possibly taking into account the fact that this is not one of those events where the world changes from tomorrow but rather it is going to be a work in progress with lasting ramifications which would be discussed many times over before they get into black and white.

ET Now: Let us also talk a little bit about what the outlook is when it comes to sector allocations. After all that we have been through, which are the sectors that you think are likely to outperform in the long run?

Ajay Tyagi: In the long run, whether Brexit or not, it is reasonably clear that India basically being a consumption driven economy with about 70-75 per cent of our GDP coming in from the domestic consumption these themes would be and these sectors would be the ones which would be the real long-term outperformers and here you have a whole host of sub sectors which is consumer staples, consumer discretionary which would include autos. We also have banks of course what clearly has come out in the last seven-eight years is that private sector banks have held on to asset quality much better because of their better underwriting skills and ability so therefore I would include them as one of the consumption sectors going forward and healthcare for sure. So we would love to concentrate our bets on these sectors and be opportunistic in certain other sectors.

ET Now: How do you see FII flows penetrating into India on account of all that has happened not just with the equity markets but with the currency as well?

Ajay Tyagi: Let me first talk about the equity markets. We can break this up into two parts; one is that what happens to the FII flows in the immediate next one, two or three months and I think there we might have to contend with that volatility. Like I said we still have not seen the last reaction on this event which panned out on Friday. Therefore I would really be surprised if volatility totally dies out in the next few weeks.

Now the other point is what happens to these FII flows over the medium to long run? I think there I would be equally surprised if we do not get a far better share of these FII flows into the Indian equity markets because if anything India’s position as an outlier, as a outstanding kind of an economy which continues to chug along between a 7-8 per cent kind of a GDP growth. At that rate, India will keep attracting perhaps an inordinate amount of FII flows.

On the currency side, again shorter term volatility will persist, volatility will happen on the basis of the kind of outflows that we could see both from the fixed income markets and equity markets and of course the FCNR redemption that we have. I think over the longer term rupee has very closely tracked. On a fundamental basis, the inflation differential that India has on the basis of other developed market currencies whether it is the Euro or it is the dollar and on a fundamental basis that hypothesis should hold true. So really watch out on the inflation. If the inflation remains a benign 6-6.5 per cent, then I do not think there is a great reason to worry about a sudden kind of depreciation in the currency.